Jun 13, 2011

Estimating poverty

Jamil Nasir Management guru Peter Drucker once said, “What gets measured gets managed.” He was referring to the management of organisations, private and public, in this dictum. But the saying is equally applicable to issues of national importance. Correct measurement or determination is the first step towards effective tackling of a public policy issue. What if this seemingly small rule is not followed? Put simply it would mean: lax monitoring, sub-optimal public policy choices, poor planning, ad-hoc strategies, and lacklustre efforts.

Unfortunately application of this simple approach is badly lacking at the organisational level as well as in the management of national issues. The issue of poverty is a case in point. Poverty figures have not been quantified in the Economic Survey 2010-11, meaning we do not have official poverty figures.

Poverty reduction has always been touted as one of the priority areas by every regime, political as well as military, but the fact of the matter is that we have not yet taken the first step in the right direction that is correct measurement of the population living below the poverty line. Poverty figures reported in the surveys conducted in the past have been questioned. The popular perception is that the results of such surveys do not reflect the correct number of the poor in the country.

For example, it was estimated in Fiscal Year (FY) 2005-06 that 23.9 percent of the population was living below the poverty line. Another poverty survey was conducted in FY 2007-08. Its finding was that poverty levels in the country had gone down from 23.9 percent to 17.2 percent. A majority of the people, including the economists, did not buy these results, despite a seal of approval from the World Bank. According to independent reports, actual figures of poverty are much higher. As many as 51 percent of the population is living in multidimensional poverty and 54 percent is faced with acute deprivation, says the UNDP report for 2010. The report has further revealed that over half of Pakistanis are deprived of basic education and health facilities.

The underestimation of poverty figures bordering on outright deception persists. But this approach premised on falsehood will lead us nowhere. Things will go from bad to worse with each passing day. It is imperative that the state ensures: firstly, that the poor are not written off from the state statistics as bad debt and secondly, statistics are correct and reliable, if we really want a decisive break with poverty.

Is poverty on the decline? A definite answer to this question is difficult for want of correct data or empirical evidence. However, anecdotal evidence and observation suggest that poverty has increased during the last couple of years. A dispassionate analysis of the structural changes in the economy and society that have a direct impact on poverty may however give a fair idea of the rising poverty levels.

A majority of the poor reside in the rural areas of Pakistan where land is the major determinant of wealth, income and power. Distribution of land is, however, highly skewed. The prices of agricultural commodities have witnessed an upward surge in the last couple of years. Pakistan is not an exception to this trend. Resultantly, the income of the landowners and farmers, who already commandeer land, power and wealth, has increased substantially. Increase in agricultural commodity prices therefore has direct implications for food security and poverty especially for the urban labour and the landless rural people.

The swelling of incomes of the landowners has also accelerated the process of mechanisation having direct implications for the agricultural labour. As a result of mechanisation, the association between rural labour and agriculture has eroded. The demand for agricultural labour has not kept pace with the rise in the prices of agricultural commodities. Thus the fruit of agriculture income is concentrated in the thin minority of the rural areas – the landowning class and growth in the rural areas has not been inclusive in nature.

Some economists have argued that a majority of the rural people have benefited from the agricultural commodity boom. Their argument is that consumer demand for goods like automotives has increased in the rural area. But their argument is prima facie fallacious on two grounds: First, this argument can be valid if the growth or structural changes in agriculture are such that they stimulate the demand for agricultural labour and deepen the association of the rural people with agricultural activities, which is not the case at present. Second, there is no evidence that demand for automotives has increased for the non-landowning sections of the rural area as well. So the point is that based on the structural changes in agriculture, we can conjecture that poverty and inequality have increased in rural areas.

Sluggish growth of the industrial sector due to power shortages has also deepened poverty. A large number of industrial units in the major cities of Pakistan have closed down. Contraction of industrial growth has direct implications for employment of the labour class especially less literate, unskilled, and semi-skilled workers. Unemployment caused by a slow industrial sector has also exacerbated poverty.

Further, ever-rising inflation has squeezed the incomes of the lower middle class, wage earners and government employees. Hardly a day passes without media reports of incidents of suicide being committed due to financial worries and hunger.

In order to effectively address the poverty issue, we should at least take the first step – gathering correct, complete and meaningful data about the poor. The data so collected should not be gibberish that doesn’t serve any purpose. Instead, it should provide guidance with regard to what interventions to make and what social safety nets to construct to optimise the use of financial and physical resources. Data should become the basis for policy formulation. Through accurate data we can choose public actions with the highest poverty impact.